A gratuity calculator is an helpful tool for estimating the amount you would receive upon leaving a job
Gratuity formula:
(15 x your last drawn salary x tenure of working) / 26
To use the calculator, input details such as the last drawn salary and the duration of continuous service with the company. The last drawn salary included the basic salary, dearness allowance, and any commission earned.
What are the eligibility criteria for receiving gratuity?
The Payment of Gratuity Act of 1972 is applicable to all establishments or organisations employing 10 or more employees. Employers who wish to provide gratuity benefits to their employees can choose to adopt the provisions of the Payment of Gratuity Act of 1972, and therefore, become liable to pay gratuity to eligible employees.
The following conditions must be met for the employee to earn a gratuity:
- The employee must be qualified for retirement benefits.
- The worker ought to have retired.
- The employee must have left their position after five years with the same company.
- The employee must have passed away or become disabled as a result of an illness or accident.
Gratuity Calculation – What is the formula for calculating the Gratuity?
The gratuity rules and calculations are prescribed by the Payment of Gratuity Act of 1972.
There are mainly two categories, as given below.
- Category 1: Employees covered under the Act
- Category 2: Employees not covered under the Act
Category 1: Employees covered under the Act
Using the two critical parameters – number of years of service and last salary drawn, you can calculate the gratuity as follows:
The Gratuity calculation formula that you can use to calculate the Gratuity amount is:
Gratuity = Last drawn salary x (15/26) x Number of years of service
Here:
- The number of working days per month is taken as 26 days.
- The gratuity calculation is accounted at the rate of 15 days wages.
The last drawn salary should be calculated to account for the following components:
- Basic
- Dearness Allowance – for government employees
- The commission received on sales
Example: If you had been drawing Rs. 80,000 as your last basic salary with 10 years four months of employment tenure, then the gratuity amount you will receive as per the formula is:
Gratuity = Rs. 80,000 x (15/26) x 10 = Rs. 4.62 lakh
The four months are below 5, so it is rounded off to 10. Months more than five are rounded off to the following year.
Category 2: Employees not covered under the Act
You can be paid a gratuity even if the organisation is not covered under the Act. If that is the case, the number of working days in a month changes to 30 days instead of 26 days.
Gratuity = Last drawn salary x (15/30) x Number of years of service
In the above example, if your organisation is not covered under the Act, then the calculation will be as follows:
Gratuity = Rs. 80,000 x (15/30) x 10 = Rs. 4.00 lakh
For employees covered under the Act, the benefit of a lower denomination is given. Hence, working days in a month are taken as 26 days instead of 30 days.
How can a gratuity calculator help you?
The gratuity calculator is useful in a number of situations, some of which are listed below:
- Decide how much you will get
The calculator provides you a rough indication of the gratuity you will get when you retire. It aids in calculating the pay you receive from the employer in exchange for your years of service. - Facilitates improved financial planning
By knowing the gratuity funds, you can build a strategy. With the appropriate investments, you can enjoy your retirement without worrying about money. You can carefully arrange your funds and make other investments once you are informed of the gratuity you will receive. - Saves time
You do not need to spend many hours determining the gratuity you will receive; you can get precise findings quickly. Enter the necessary information into the calculator to get precise results quickly.
